Hopes to keep up performance of first two quarters

Next month, the 10-year tax holiday enjoyed by Lanka IOC (LIOC), an overseas venture of Indian Oil Corporation, comes to an end. Buoyed by the last quarter’s statistics, LIOC says it is unperturbed by the fact that it will have to pay 15 per cent tax from mid-February.

LIOC made modest profits in FY 2010-11 (LKR 877 million) and FY 2011-12 (LKR 906 million), after a few bad years. In 2012-13 too, the first two quarters have been impressive, and LIOC expects to keep the momentum going.

Geared for tax

LIOC, a public-liability listed company, retails petrol and diesel in Sri Lanka, and is into the business of bunkering, lubricants, and bitumen. It also plans to venture into the petrochemicals market this year.

Annually, Sri Lanka consumes about 4.5 million tonnes of petrol and diesel. This is expected to grow to about 6 mt by 2020.

“We are geared for that (end of tax holiday). We will have to provision about LKR 100-150 million this financial year for tax. We are not seeking an extension of the tax holiday,” LIOC Managing Director Subodh Dakwale said, in an interview.

“We have been requesting the Government of Sri Lanka to firm up a pricing policy. There is need for formula-based pricing for providing a level playing field with CPC (Ceylon Petroleum Corporation, the other, but major player in the Sri Lankan market).We will continue pushing for this,” he added.

LIOC imports petroleum products and retails it in Sri Lanka. Since LIOC can fix price of its products, it sells diesel about LKR 6 more than the Sri Lanka-owned CPC. LIOC has, hence, lost part of its diesel clientele, but has managed to retain its petrol customers (20-21 per cent of market share) because both CPC and LIOC retail petrol at the same price.

Staying competitive

Passing on the tax to customers is not an option for LIOC as its pricing has to be closer to that of CPC to be competitive in the market.

In a decade of operations, LIOC’s turnover has grown from LKR 14.5 billion to LKR 60.4 billion (2011-12). It plans to add a few automated petrol sheds this year, and refurbish part of the World War 2 vintage Trincomallee tank farm.

“We want to use part of the tank farm to set up a bitumen handling facility. We have big plans for the tank farm. In the first phase we will put to use about 30-35 of the tanks,” Mr Dakwale said.

(This article was published on January 16, 2013)
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